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With the turmoil in the financial market, rising unemployment rate, and falling consumer confidence, it seems certain that the crisis which originated from Wall Street has spread to Main Street, and the economy, after enjoying a long period of high growth and low inflation, takes a dramatic turn and is now heading toward the deepest recession in decades. But don’t panic just yet. While it is a trying period for companies, those who do survive this often emerge much stronger and are better positioned for future growth. Our consultants share their thought.
The Art of Balancing
It has always been a tough call to make to balance the need for short-term fire-fighting and that of long-term capabilities-building. It is even more so now. The management feels the unprecedented pressure to cut back spending and stop companies from bleeding. However, we still believe that managers need to resist the urge to take the simplistic but politically-correct across-the-board cost cutting approach. That would squander investments in people and process improvements before and undermine workers’ confidence on management’s commitment to keeping processes efficient and effective. Cut the Fat
The obvious reaction is to cut the fat: layoff under-utilized headcounts, trim down non-essential spending etc. However, companies, under the pressure to act quickly, sometimes cut their muscle instead. In fact, few companies have fully capitalized on the explosion of data in recent years. Analyzed properly and wisely, companies can gain valuable insights into their own business, uncovering their strength and weakness. Click here to see how we help our client gain insights through their own data.
Once problems have been surfaced, companies can use process optimization tools to improve outdated processes, automate manual steps, reduce redundancies, and tackle bottlenecks. Click here to see how we help our client in process optimization. Cash is King
Companies usually don’t pay enough attention to cash, since its impact on earnings isn’t immediate. Well, not anymore. As underscored by the recent crisis, many companies file for bankruptcy not due to insolvency but because of illiquidity. The good news is there are many solid opportunities to free up cash and reduce or postpone spending it, thanks to their oversight.
One obvious way is to tighten the management of accounts payable and receivable. Click here to see how we help our client review accounts payable and receivable processes and shorten billing cycle. The impact is immediate, two days reduction in cash turnover means an additional $1 million to $2 million for a company with $200 million in sales.
Another possible move is to look into their inventory. Chances are they can quickly and safely turn a significant amount of stock into cash. The key is to reduce the “local” safety buffer in the supply chain. Click here to see how we help client review their inventory position and policies. A conservative estimate of 20% reduction in inventory can translate to $4 million for the $200 million company. Go Aggressive
Cost-cutting measures are appropriate to be employed to fend off the wave of damaging strike of the recession and maintain a short-term peace of mind. Once the bottom lines are under control, companies should think more aggressively to push up their top lines. Leveraging on the new insights from data mining, companies can boost revenues. Click here to see how we help our client increase revenues by looking into quotation history, controlling discount, and identifying cross-sales opportunities. The impact of increasing employees’ productivity is not limited to cost-cutting. Higher productivity in front office means bigger revenue. As the saying goes, you can only improve what you measure, performance management of employees are essential. Click here to see how we help our bank client enhance employees’ productivity through automated scorecard reports generation and end-to-end leads management. Keep IT Up
One special note we would like to make is about information technology (IT) investment. Although IT often represents a small fraction of the company’s overall operating cost, the management usually views IT as mere cost center and inevitably squeeze IT budget in the downturn. It makes sense, yet in some instances, IT investments deliver more value than any saving gained from IT budget cutting, through improved efficiencies and boosted revenue. Be it generating new insights, making processes more efficient to reduce rework, or automating manual procedures, IT is essential to all of these efforts. Companies need to weigh the potential gains and cost carefully before cutting IT budge. According to a survey, successful companies increased their market-to-book advantage over their former peers by more than 38 percent in the 1990–91 recession period. Managing it carefully, companies can turn the looming downturn to a golden opportunity to build up their capabilities needed for future sustainable growth.
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